Central bank chief battles to keep Somalia connected to world finance

In a world where many central bankers fret about deflation, defaults and currency break-ups, Somalia’s central bank chief has a more straightforward mission: helping a financial industry that grew up in war to survive in peace.

It has become an urgent matter. Money transfer firms which kept cash flowing into Somalia during two decades of conflict when the nation’s formal financial system collapsed are now finding fewer banks abroad ready to do business with them.

Regulators around the world have tightened procedures to stop funds reaching those Western and other governments call “terror” groups, such as Somalia’s al Shabaab Islamists.

Somali firms insist their procedures ensure cash reaches ordinary citizens and is not diverted. But banks are gradually closing down their ties and choking a lifeline for the nation.

An estimated $1.3 billion or more is transferred each year from Somalis abroad, often in small monthly payments of $200 or $300 to keep families back home a fed and schooled.

“Somalia may live without a government but it cannot live without remittance companies,” Governor Bashir Issa Ali told Reuters from Mogadishu, where the spruced up central bank is still surrounded by bombed-out buildings and the rubble of war.

“We have to address the concerns of the international community,” he said of moves to draw up new regulations for Somali banks and transfer firms. “Our regulations begin things from scratch so it’s difficult to do.”

The money transfer firms, many with fully regulated and licensed offices in the West and elsewhere, insist they already meet requirements for those markets and say they are ready to do more to keep channels open, if only regulators explain would what was needed.

Ali is working with the World Bank, International Monetary Fund and others on regulations for the financial sector. The central bank has awarded six commercial banking licences, all to remittance firms seeking to formalise banking activities.

COMPLIANCE

His proposals which include biometric identification for clients and improving registration procedures for mobile phone SIM cards.

“We have to ensure they have some compliance mechanisms, anti-money laundering, anti-terrorism financing,” said Ali, who was appointed governor in April after his predecessor quit citing official corruption. The government denied the charges.

Merchants Bank of California, which charities estimated handled up to 80 percent of remittances from the United States, told Somali-American transfer firms it was ending relations. In Britain, Barclays recently withdrew banking services.

Ali wants to rebuild confidence and rehabilitate the banking industry so that it will draw in foreign banks, including as partners with Somali institutions.

“We are trying to engage and entice international commercial banks which can open branches and buy other (Somali) banks, in order for us to have more professional banks,” Ali said.

Tentative talks have been held with several banks from Kenya, Somalia’s southern neighbour, and one commercial bank from Turkey, a big donor and investor. Turkish firms already operate Mogadishu port and the airport.

Ali did not name the banks and acknowledged talks had not gone far. “They were concerned about security,” he said. “They have every right to be personally concerned or be afraid.”

Al Shabaab, determined to impose its strict interpretation of Islam on the nation, frequently launches bombings and gun attacks in Mogadishu, a city which is slowly recovering.

With new buildings sprouting up and some Somali investors returning, the financial landscape is changing. In October, the Salaam Somali Bank opened the city’s first ATM cash machine, which dispenses dollars, widely used in Somalia.

But most Somalis rely on mobile money services via their phones, given the scarcity of the Somali 1,000 shilling note, the only local currency unit still in circulation and mostly tattered as it was last printed before war erupted in 1991.

Ali said this entrepreneurial spirit kept Somalis going during the war and should now be harnessed for reconstruction.

“We are very bad farmers, very bad fishermen and very bad at politics, but we are the best businessmen in the world.”